Developing a Trading Plan

The difference between making money and losing money can be as simple as trading with a plan or trading without one. A trading plan is an organized approach to executing a trading system that you've developed based on your market analysis and outlook while factoring in risk management and personal psychology.

No matter how good your trading plan is, it won't work if you don't follow it.

Traders who follow a disciplined approach are the ones who survive year after year after year. They can even have more losing trades than winning ones and still be profitable because they follow a disciplined approach.

Here is a summary of what the key benefits are:
Trading that is simpler with a plan than it is without one.
Reduced stress which means better health.
Ability to gauge your performance, identify problems, and make corrections.
A trading plan helps to prevent many psychological issues from taking root.
A trading plan that is adhered to strictly will reduce the number of bad trades.
A trading plan will help prevent irrational behavior in the heat of the moment.
A trading plan enables you to control the only thing you can control... yourself!
A trading plan will instill a large measure of discipline into your trading. Gamblers lack both discipline and a trading plan.
A plan will enable you to trade outside your comfort zone. How many times have you let a loss run and cut a profit short because it was the comfortable thing to do? A plan, executed with discipline, will help to prevent this from happening.
A plan is your GPS which will enable you to get from wherever you are now to wherever you want to be: consistent profitability.
Your trading plan is designed in such a way that if you do take a "wrong turn", you will know about it very quickly and have the opportunity to correct the problem before losses spiral out of control.
Always remember that the trading plan is a work in progress.

As things change, the trading plan must change, too. Assess your trading plan and processes periodically, especially when you have changes in your financial or life situation. Also, as your research leads to changes in your trading system or methods, be sure to reflect those adjustments in your trading plan.
Remember, the main purpose of the trading plan is to keep you on task, and to operate in an effective and efficient manner to make good trading decisions. It is, however, only as good as you make it, and it is completely useless if it is not

Each Trader is Unique
There are over 8 billion people in the world (including space aliens disguised as humans) and not one person is exactly the same as another. Even identical twins will have different fingerprints.
Everyone has their own look, personality, talents, and pizza topping preferences (we like pepperoni and potato chips). We all like different things and are unique in our own way.Trading is the same way. Our unique personalities will lead us to trade differently from one another. Some may be aggressive, "type A" personality traders while others may be more relax, "type B" personality traders. Some may like taking small wins all the time, while others don't mind losing a bit in order to make those huge gains when they do win.
The point is that no two traders are alike. Even if a group of people were to trade the same system rules, each person's end results would most likely be different from everyone else.

Is that a bad thing? Not at all!
Our uniqueness is what makes the world go round, so it's important to know your lifestyle and personality to help identify trading strengths and weaknesses. Trying to force a trade that doesn't match your personality will result in frustration and can hinder you from making consistent profits.

Day Trading

Day trading is another short term trading style, but unlike scalping, you are typically only taking one trade a day and closing it out when the day is over. These traders like picking a side at the beginning of the day, acting on their bias, and then finishing the day with either a profit or a loss. They DON'T like holding their trades overnight.

Day traders are suited for those that have enough time throughout the day to analyze, execute and monitor a trade. If you think scalping is too fast but swing trading is a bit slow for your taste, then day trading might be for you.


You might be a day trader if:
You like beginning and ending a trade within one day.
You have time to analyze the markets at the beginning of the day and can monitor it throughout the day.
You like to know whether or not you win or lose at the end of the day.


You might NOT be a day trader if:
You like longer or shorter term trading.
You don't have time to analyze the markets and monitor it throughout the day.
You have a day job.
Some things to consider if you decide to day trade:
Stay informed on the latest fundamentals events to help you choose a direction

You will want to keep yourself up-to-date on the latest economic news so that you can make your trading decisions at the beginning of the day.
Do you have time to monitor your trade?

If you have a full time job, consider how you will manage your time between your work and trading. Basically....don't get fired from your job because you are always looking at your charts!

Swing Trading
Swing trading is a longer term trading style that requires patience to hold your trades for several days at a time.
It is ideal for those who can't monitor their charts throughout the day but can dedicate a couple of hours analyzing the market every night.

This is probably best suited for those who have full time jobs or school, but have enough free time to stay up-to- date with what is going on in the global economies.

Swing trading attempts to identify medium term trends and enter only when there seems to be a high probability of winning.

Because trades last much longer than one day, larger stop losses are required to weather volatility, and a trader must adapt that to their money management plan.

You will most likely see trades go against you during the holding time since there can be many fluctuations of the price during the shorter time frames.

It is important that you are able to remain calm during these times and trust in your analysis.

Since trades usually have larger targets, spreads won't have as much of an impact to your overall profits. As a result, trading pairs with larger spreads and lower liquidity is acceptable.


You might want to be a swing trader if:
You don't mind holding your trades for several days.
You are willing to take fewer trades, but more careful to make sure your trades are very good setups.
You don't mind having large stop losses.
You are patient.
You are able to remain calm when trades move against you.


You might NOT want to be a swing trader if:
You like fast paced, action-packed trading.
You are impatient and like to know whether you are right or wrong immediately.
You get sweaty and anxious when trades go against you.
You can't spend a couple of hours every day to analyze the markets.
You can't give up your World of Warcraft raiding sessions.
If you have a full time job but enjoy trading on the side, then swing trading might be more your style! Make sure you swing by our "Show me the Money" thread so that you can interact with other swing traders.

Position Trader
Position trading is the longest term trading and can have trades that last for several months to several years!
This kind of trading is reserved for the ultra-patient traders, and requires a good understanding of the fundamentals.

Because position trading is held for so long, fundamental themes will be the predominant focus when analyzing the markets.
Fundamentals dictate the long term trends of currency pairs and it is important that you understand how economic data affects your countries and its future outlook.
Because of the lengthy holding time of your trades, your stop losses will be very large.
You must make sure you are well capitalized or you will most likely get margin called.

Position trading also requires thick skin because it is almost guaranteed that your trades will go against you at one point or another.

These won't just be little retracements either.

You may experience huge swings and you must be ready and have absolute trust in your analysis in order to remain calm during these times.
You might be a position trader if:
You are an independent thinker. You have to be able to ignore popular opinion and make your own educated guesses as to where the market is going.
You have a great understanding of fundamentals and have good foresight into how they affect your currency pair in the long run.
You have thick skin and can weather any retracements you face.
You have enough capital to withstand several hundred pips if the market goes against you
You don't mind waiting for your grand reward. Long term trading can net you several hundred to several thousands of pips. If you get excited being up 50 pips and already want to exit your trade, consider moving to a shorter term trading style.
You are extremely patient and calm.

You might NOT be a position trader if:
You easily get swayed by popular opinions on the markets.
You don't have a good understanding of how fundamentals affect the markets in the long run.

You aren't patient. Even if you are somewhat patient, this still might not be the trading style for you. You have to be the ultimate zen master when it comes to being this kind of patient!
You don't have enough starting capital.
You don't like it when the market goes against you.
You like seeing your results fast. You may not mind waiting a few days, but several months or even years is just too long for you to wait.